ABI Blog Exchange

The Truth in Lending Act (“TILA”) provides, in the event the lender fails to make certain required disclosures, a right in the consumer borrower to rescind a home loan “by notifying the creditor. . . of his intention to do so” within three years of the date the loan was consummate. 15 U.S.C. § 1635(a). However, how must the consumer notify the creditor of his intention to rescind? Must the consumer file a lawsuit seeking rescission, or may he rescind by simply sending the creditor a letter rescinding the loan? In its opinion in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), the U.S. Supreme Court held that a simple letter will suffice.
In Jesinoski, the consumer borrowers sent a letter to Countrywide Home Loans rescinding their loan within three years following consummation of their loan. A year and a day after sending the letter, the Jesinoskis files a lawsuit seeking rescission and damages. The District Court entered a judgment in favor of Countrywide, holding that a borrower may exercise his or her right of rescission only by filing a lawsuit within three years after the loan is consummated. The Eight Circuit affirmed that decision, but the Supreme Court reversed.

If cramdown failures are par for the course, why are we all so fascinated with them? One thing is certain: they always provide a good teaching moment for practitioners. Marlow Manor’s chapter 11 single asset real estate case is no different. In Marlow Manor, the Ninth Circuit Bankruptcy Appellate Panel held that the bankruptcy court did not err in (i) refusing to confirm the debtor’s chapter 11 plan, which improperly classified two unsecured and impaired deficiency claims of its lender in separate classes as secured and unimpaired, and (ii) rejecting an aspect of the plan, which treated the lender as if it had made a section 1111(b)(2) election.
Background
Marlow Manor owned a portion of a high rise in downtown Anchorage. The high rise was subdivided by a developer (the debtor’s manager, Marc Marlow into a two unit condominium project: (i) Unit A was owned by an investor and (ii) Unit B was owed by Marlow Manor. Unit B was to be converted into a senior assisted living home and was financed by a $5.4 million construction loan. In 2007, the Alaska Housing Financing Corporation (“AHFC”) refinanced the majority of the construction loan through two long term loans in the amount of $5.45 million (summarized in the chart below).

Lifestyle Lift, a nationwide chain of cosmetic surgery centers, abruptly shut down the majority of its business Monday and said it is considering filing for bankruptcy. The Wall Street Journal has the Daily Bankruptcy Review article here.
(Daily Bankruptcy Review is a daily newsletter with comprehensive coverage and analysis of emerging and in-progress insolvencies and turnarounds. For a two-week trial, visit http://on.wsj.com/DJBankruptcyNews, scroll to the bottom and click “try for free.”)
Lehman Brothers Holdings Inc. collapsed more than six years ago, but the failed investment bank is still paying millions in bonuses to the team winding down its business, DBR reports in WSJ.
Creditors have come to terms with RadioShack Corp. over bonuses top-ranking insiders stand to earn in the weeks ahead, as the retailer attempts to save a slice of its battered collection of stores, DBR (sub. req.) reports.

BlackRock has revised its U.S. proxy voting guidelines,following their annual review of governance and proxy voting trends. The guidelines are not expected to result in significant differences from how BlackRock has voted in the past.

Banks have to invest in mobile technology in order to keep up with millennials. But bankers also need opportunities to rub shoulders with young customers Â-- and small, conveniently-situated branches give them an opportunity to do so.

Receiving Wide Coverage ... Nothing But Stress: Foreign banks are stressed about the stress tests. Deutsche Bank and Santander are both expected to be called out by the Federal Reserve on Thursday, when the stress test results are announced, for lapses in risk management. Capital isn't the issue with foreign banks. Instead, it's how they measure and predict risks and losses. DB, Santander, Barclays, Credit Suisse, HSBC and UBS are "now spending heavily and recruiting projectÂ...

In a fact-heavy 16 page opinion issued by Judge Shannon on March 2, 2015, we get a clear picture of the challenge faced by litigants when opposing aggressive pro-se litigants. In Bishop v. Fannie Mae, Adv. Pro. No. 12-50912, the pro-se plaintiff was a chapter 13 debtor who was attempting to secure relief from his mortgage by bringing suit against Fannie Mae. As reflected in the 5 pages of background, the plaintiffs raised litigation against Fannie Mae in multiple Delaware courts and at the time Judge Shannon’s opinion was issued, had lived in their home without having made a mortgage payment in over 6 years. The Opinion can be read here.

In conjunction with assuming the lease, the Bankruptcy Code allows the debtor-tenant to assign the lease to a third party. The party who is assigned the lease must provide the landlord with adequate assurance that it can meet the financial obligations of the lease. If the party who is assuming the lease cannot provide the landlord with adequate assurance, the landlord has cause to object to the assignment.
Bankruptcy courts often apply the “business judgment” standard when considering whether to allow a tenant to assume and assign a lease. Under this standard, debtor-tenants are permitted to assign a lease provided it can show the transfer of the lease is a reasonable business decision. Although courts provide debtor-tenants with broad discretion on the decision of whether to assume and assign a lease, the debtor-tenant must still demonstrate the assigned party’s ability to cure defaults under the lease and make future payments.
Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP. Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Did you recently abandon or move out of a property going through foreclosure in Walworth County? Are you a financial institution left with an abandoned property going through a Walworth County foreclosure? A recent Wisconsin Supreme Court decision could have interesting ramifications for both banks and homeowners. The decision states that mortgage lenders must sell foreclosed and abandoned property within a reasonable time after obtaining a foreclosure judgment. The “reasonable time” period will depend on the circumstances surrounding the foreclosure.
The Story Behind the New Walworth County Abandoned Foreclosure Law
The decision came after a Milwaukee home was abandoned following a bank foreclosure process. The homeowner walked away. The bank did nothing. The home was then burglarized and vandalized as well as never properly maintained. The property became invaluable and not worth the bank’s time and money to sell. The home then racked up fines due to violating city codes. The homeowner was held responsible. Despite the homeowner’s attempt to declare the property abandoned, it never happened. The Circuit Court declared it did not have the authority to label a home abandoned.

Dear Leon,
What is the best way to get out of debt quickly? I am flat broke. I have no extra money. Would a debt settlement plan be the best thing for me? I am tired of bill collectors chasing me.
You of all people must know how. Please help.
Sincerely,
David in Sacramento, CA

The best way to get out of debt quickly is to pay what you owe. But when you have no money, that won’t happen. The next best way to get out of debt quickly is to consider bankruptcy. There are very few people who should seriously consider a debt settlement plan. Here’s why that is.
Debt settlement plans help very few people. There is no chance of a debt settlement plan helping you unless you have extra money. Without extra money, you can’t double up on payments. If you enter a debt settlement plan you won’t double up on anything but your misery.
Debt settlement plans are also terribly expensive. They usually cost between two and four times the price of a bankruptcy case.
And, here’s a bigger difference. Most if not all of your debts should be gone after you have paid a lawyer and filed bankruptcy. But after you pay the settlement company fee, you still owe your debts. Paying in enough money to resolove your debts is a further expense. Paying the creditors is yet to come.

Should bankruptcy laws that allow companies broad latitude in selecting a venue be reformed?
The bankruptcy laws that allow companies flexibility in selecting a venue shouldn’t be changed.
The vast majority of bankruptcy filings actually are filed either where the company has its principal place of business or where its principal assets are located. It’s only in larger cases that companies tend to file where the company is incorporated. There are good reasons for this.
The goals of chapter 11 are to reorganize businesses and maximize the return to stakeholders while providing due process to interested parties. In determining where to file, large companies seek to minimize uncertainty. That can best be accomplished by filing in jurisdictions that have well-established precedent on key issues, such as first-day motions. In mega cases, that has been the Southern District of New York and Delaware. Thus, it shouldn’t be a surprise that many of the larger cases are filed there. It should be noted that often times it’s not just the company that wishes to file in these venues but the key lenders also, as they also desire predictability.

Should bankruptcy laws that allow companies broad latitude in selecting a venue be reformed?
The debate over venue shopping has been ongoing for years.
The central concern—as viewed by Lynn LoPucki in “Courting Failure, How Competition for Big Cases Is Corrupting the Bankruptcy Courts”—is unbridled competition for cases by both Delaware and the Southern District of New York. Professor LoPucki substantiates the impact of this competition based on historic growth in either court’s market share and argues there is an attendant cost reflected in case outcomes, post-emergence. It is far from clear, however, that this concentration has impaired results.
The volume of cases in these two jurisdictions may simply be self-reinforcing. Over time, caseloads in these courts have served to justify additional judges. This, in turn, affords both courts more cases, experience and corresponding efficiencies. Furthermore, either court is favored by dint of location central to the Northeast corridor, a region encompassing the preponderance of bankruptcy professionals, as well as dominant lenders.

Should bankruptcy laws that allow companies broad latitude in selecting a venue be reformed?
Most bankruptcy cases should be heard in forums consistent with current law that are the most convenient and cost-effective for both the parties-in-interest and those most likely to play ongoing roles in chapter 11 case administration.
Particularly in large enterprise chapter 11 cases, the location of the debtor’s principal place of business or principal assets may—or may not—be such a forum.

Lawmakers reluctant to offer community banks regulatory relief should consider the empirical evidence of how Dodd-Frank has hurt small lenders Â-- and listen to the federal and state bank regulators calling for changes.

Judge Robert Gerber will be stepping down at the end of this year, ending a storied judicial career highlighted by his oversight of the 2009 chapter 11 case of General Motors Corporation (“Old GM”). In one of the most frenetic bankruptcy cases of all time, Judge Gerber signed an order (the “Sale Order”) approved the sale of substantially all of the assets of Old GM to a new entity, General Motors LLC (“New GM”), “free and clear” of claims against Old GM (other than a narrow range of expressly assumed liabilities), and with an express injunction to prevent Old GM creditors from proceeding against New GM. Now, he will be spending a substantial portion of his remaining time on the bench seeking to resolve the legal quandaries raised by the Sale Order, following the revelations last year that ignition switch defects in cars manufactured prior to 2009, which allegedly caused numerous deaths and injuries, were known by employees of Old GM but were not properly reported (or perhaps were deliberately covered up).

Should bankruptcy laws that allow companies broad latitude in selecting a venue be reformed?
The venue statute effectively allows those filing the case to choose which district’s bankruptcy court will hear the case. That ability to choose leads many firms whose business is located elsewhere to file for bankruptcy in Delaware’s bankruptcy court or in the Southern District of New York.
Is this a bad thing? In two dimensions, it is. Since the choice of where to file is typically made by the debtor’s senior management and its professional advisers, these two have reason to file in a court whose decisions favor their interests—more discretion for managers and more protection from liability for directors. Sometimes a tilt toward their interests makes sense; sometimes not.

More is more, right? Not according to the Bankruptcy Court for the Northern District of Florida. The court recently ruled that when a creditor tries to capture the maximum amount of collateral in its security interest, this could have the opposite effect and result in an entirely unsecured claim. As most creditors know, the treatment of a claim in bankruptcy is governed not only by the Bankruptcy Code, but also by state law. The extent to which a creditor has a claim secured by a valid, enforceable security interest in the borrower’s assets often is governed by the applicable state’s Uniform Commercial Code (“UCC”).
Generally, in order for a security interest to attach to collateral under the UCC, three requirements must be met: (1) value must have been given; (2) the debtor must have rights in the collateral; and (3) depending upon the type of collateral, there must be an authenticated security agreement that provides a description of the collateral. As seen in In re Hintze, the sufficiency of such collateral description can be critical in defining the nature and extent of a secured creditor’s claim in bankruptcy.
Facts

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A RadioShack sign is viewed at a location in the Eastern Market neighborhood of Washington, D.C., in February 2015.

Melanie Cohen

GameStop is picking up about 163 RadioShack Corp. locations, boosting its Spring Mobile collection of AT&T Inc. cellphone sales outlets by about 50%. The Wall Street Journal has the Daily Bankruptcy Review article here.
(Daily Bankruptcy Review is a daily newsletter with comprehensive coverage and analysis of emerging and in-progress insolvencies and turnarounds. For a two-week trial, visit http://on.wsj.com/DJBankruptcyNews, scroll to the bottom and click “try for free.”)
A federal judge has finalized an order for ex-billionaire and Texas entrepreneur Sam Wyly to pay a $198.1 million in fines, after regulators accused him of profiting for more than a decade from hidden stock trades. Read the DBR article in WSJ.